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The Best of Kass

NEW YORK (TheStreet) -- Doug Kass of Seabreeze Partners is known for his accurate stock market calls and keen insights into the economy, which he shares with RealMoney Pro readers in his daily trading diary.

Among his posts this past week, Kass urged caution about short-selling stocks such as Netflix and about central-bank money-printing.

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Netflix Provides an Important Short-Selling Lesson
Originally published on Friday, Jan. 25 at 7:25 a.m. EST.

  • Shorting heavily shorted stocks can be harmful to your investment and financial well-being.
  • On a return to modest profitability, Netflix's (NFLX) shares soared by about 40% yesterday, providing an important short-selling lesson to investors and traders -- a lesson I have repeatedly delivered over the years in my diary.

    Among my rules is that I will never short an equity that has short interest in excess of about 7% of the outstanding float.

    In the case of Netflix, there are 55.5 million shares outstanding, but the float (noninsider shares owned by the public) is 48.7 million shares.

    There are 13.15 million shares short, representing an unusually high 27% of the float.

    This is a nonstarter to me and why I have never shorted Netflix -- despite, at times, having fundamental reservations regarding the company.

    Another principle I have with regard to shorting is that I never short a stock whose short interest is more than two or three days of average daily volume.

    In the case of Netflix, the average daily trading volume (over the past three months) is 4.5 million shares. The 13.15 million shares short represent about three times average daily trading volume. Again, this is a nonstarter.

    If you must short a stock with a high short interest relative to the company's float, elect to buy puts and define your risk.

    Otherwise, shorting heavily shorted stocks can be harmful to your investment and financial well-being.

    I know. I have the scars to go with that experience!

    At the time of publication, Kass had no positions in stocks mentioned.


    Everybody's Gettin' Fat 'Cept Papa Kass
    Originally published on Wednesday, Jan. 23 at 3:29 p.m. EST.

  • All this money-printing will end badly.
  • The singular and universal message in the business media today is that central-bank money-printing is a powerful and dominant market force that will overcome weak profits, a struggling economy, vulnerable profit margins and not undemanding price-to-earnings multiples.

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